I’VE given American politicians a hard time for using China as a scapegoat for all that ails the US economy.
But, hey, at least they’re consistent. Chinese officials, who have made a series of increasingly irresponsible economic policy decisions, seem to choose an increasingly improbable scapegoat every week. Now even financial journalists are in the crosshairs.
China has experienced an enviable boom these past two decades, fueled by the mass-migration of workers from the countryside to higher-productivity jobs in cities. Per-capita incomes have more than doubled in the past decade alone. But the economic party couldn’t last forever, now that the lowest-hanging fruit has been pretty well picked over. The government has expressed a desire for a “soft landing” as growth slows.
Its strategy for getting there, however, has mostly involved blowing new and ever-bigger bubbles. Then, each time one of these (inevitably) bursts, the government blames a different bogeyman. Needless to say, that bogeyman is never, ever the true culprit, poor governance.
In April, for example, a huge run-up in stock markets, driven largely by unsophisticated retail investors throwing their life savings and lots of borrowed money into stocks, led to concerns of an equities bubble. Even the government officially acknowledged that the real economy was slowing; virtually nothing could justify an 80-percent run-up in stock market prices over the previous six months. A crash looked imminent.
How did officials respond? By refilling the punch bowl. The People’s Daily, the mouthpiece of the Chinese Communist Party, mocked concerns about frothiness. Instead, the publication said that China had entered “just the start of the bull market.” This did not encourage cooler-headed behavior.
In subsequent months, after panic set in, the government never took responsibility for pumping irrational-exuberance-with-Chinese-characteristics into the economy. As shares tumbled, state-owned media blamed mysterious “foreign forces,” rather than a long-delayed correction, for “manipulating markets” through “covert channels.” Never mind that capital controls prevent foreigners from having much influence on Chinese markets one way or the other; it was easier to point fingers at an evil foreign conspiracy.
The Chinese government then made yet another round of rookie mistakes, by directing state-owned companies and financial institutions to buy up stocks to keep markets from falling further. (The Wall Street Journal even reported that in July, President Xi Jinping issued an executive order that Chinese stock markets must go back up.) This resulted in the government dumping $200 billion into equity markets over the past two months alone.
Not surprisingly, that proved unsustainable, and stocks continued to slide. The government got more and more desperate. It let the renminbi (or yuan) depreciate, only to find that the markets wanted the currency to plunge much faster than the government could tolerate. The sharp devaluation caused, among other things, economically illiterate China-bashing from US politicians, as well as fears of capital flight.
The government had lost control of the narrative, so it decided to erase the narrative altogether.
Chinese newspapers have been ordered not to cover market volatility at all, and to delete past coverage. On the day after the Shanghai Stock Exchange composite index plummeted 8.5 percent, the People’s Daily lacked even a single mention of stock markets within its 24 pages. Baidu, China’s top search engine, censored search results related to the crisis, according to South China Morning Post Editor George Chen.
Shutting off the spigot of official information did little to reduce panic, especially given the availability of social media. So, in recent days, the Chinese government has been rounding up online “rumor”-mongers, according to Xinhua, a state newswire.
Those detained included Wang Xiaolu, a respected journalist from Caijing financial magazine. Wang “confessed” to causing “panic and disorder” by reporting back in July that China’s securities regulator was studying plans for government funds to exit the market (which, you know, it would need to do eventually). In a humiliating televised confession, Wang acknowledged that “I acquired the news from private conversations, which is an abnormal way, and added my personal judgment and subjective views to finish this story” (which, you know, is how journalism usually works). In the United States when someone accurately predicts a downturn or policy change, we practically throw him a ticker-tape parade; in China, they throw him in jail.
So there you have it. It wasn’t the government, or foreign conspirators, or even gravity that led to China’s inevitable equities crash. It was a journalist who made the foolish mistake of doing his job.
(c) 2015, WASHINGTON POST WRITERS GROUP